Some giants of the stock market do trade in pennies. Just look at Rolls-Royce and Lloyds. However these firms are not typically considered penny stocks, given their market caps, even though you can buy them for pennies.

Owing to their small market caps, true penny stocks are often more volatile than other companies on the stock market. They are also thinly traded and normally have considerable spreads between the buying and selling prices.

Penny stocks can be a good place to look for young firms with high growth potential. So today, I’m looking at two penny stocks that I’d buy today and hold for a decade.

Inland Homes

Inland Homes (LSE:INL), as the name suggests, is a UK housebuilder. Its share price has been on a downward trend over the past year, despite a very strong housing market.

In fact, it’s down nearly 50% over the past 12 months. However, it’s also down a whopping 23% over the past five days. There are several reasons for this.

The company is heavily indebted and reported another loss in late June. It posted a pre-tax loss of £8.2m for the six months ending 31 March last Thursday, against a loss of £5.8m a year ago. 

However, there were some positive signs. Revenue rose and net debt fell to £96.2m versus £132.9m at the same point last year. Net assets also grew, standing at £174m.

On Monday the company also announced a £21m land sale to a build-to-rent developer. Inland Homes is working to bring its debt to more manageable levels.

Despite the near-term challenges posed by rising interest rates and the cost-of-living crisis, I’m particularly positive on the long-term prospects of the housing industry. As such, I’d buy this stock on its long-term prospects.

Kropz

Kropz (LSE:KRPZ) is an Africa-focused mining company that may play an important role in the food industry in the decades to come.

Kropz took control of the Elandsfontein phosphate project, in South Africa’s Western Cape province, back in 2010. The company created its business model having noted that while there was rising food demand around the world, fertiliser usage remained low in Sub-Saharan Africa.

The firm mines for rock phosphate — the raw material that’s used to produce phosphate fertilisers — in Africa. And this definitely looks like a good business to be in right now as fertiliser prices go sky-high. In fact, 85% rock phosphate is used in fertiliser production.

Kropz hopes to produce rock phosphate from its Elandsfontein mine later this year. However, it has already been forced to push back its first bulk sale.

The AIM-listed miner also owns the Hinda rock phosphate asset in Republic of Congo. The asset could be “one of the world’s largest undeveloped sedimentary-hosted phosphate reserves,” according to the group.

Getting production going is perhaps the biggest issue for this company. First production will likely ease investors’ nerves.

At today’s price, I’d buy Kropz stock and hold it for the long run.

These two excellent companies trade on a price-to-earnings (P/E) ratio of below 7 times. Let me explain why I’d buy them today and hold until the end of the decade.

Working it out

Budget retailer TheWorks.co.uk (LSE: WRKS) faces considerable uncertainty in the near term as shopper spending power plummets. GfK data last week showed consumer confidence slumped to record lows in a worrying omen for future revenues.

Margins at the business are also under threat from rising product, shipping, energy and labour costs.

I’m still thinking of buying TheWorks shares though. As someone who invests for the long term, I think there’s a lot to be excited about here. Consumer demand for value was already rising sharply in the years before the cost-of-living crisis. Current economic conditions have speeded up this consumer trend too.

Moreover, the arts and crafts retailer also stands to benefit handsomely from Britain’s rapidly growing army of hobbyists. Market rival Hobbycraft’s decision to open three new stores underlines the huge potential of this market.

As I said earlier, at current prices, TheWorks now offers terrific all-round positives that I find hard to ignore. The company trades on a forward P/E ratio of 5.6 times.

Meanwhile, forecasted dividends — payouts that are covered a healthy 2.2 times by anticipated earnings, incidentally — create a giant 8.2% dividend yield.

Home comforts

Inland Homes (LSE: INL) is another dirt-cheap share I think warrants serious investor attention. The housebuilder currently trades on a forward P/E ratio of just 6.3 times.

The main threat to the sector is a powerful and prolonged rise in inflation. In this environment the Bank of England (BoE) could continue aggressively hiking rates to ease the pressure. The central bank hiked its consumer price growth inflation again this month (to a jaw-dropping 11%) in a sign of the growing strain.

In this environment, homeowner affordability will come under increased pressure. This, in turn, could hit demand for Inland Homes’ properties hard.

Encouragingly though, demand for residential property continues to surge despite rising BoE rates. This fills me with a lot of confidence. There are a number of factors that could keep newbuild home sales rising strongly too. Insufficient numbers of existing properties entering the market is one.

So does the fact that the BoE’s benchmark rate remains well below levels before the 2008 financial crash mean mortgage rates will remain historically cheap? Intense competition among lenders is also helping people get on the property ladder.

Several government initiatives should also support profits growth at Inland Homes and its peers when Help to Buy ends next March. This includes the Deposit Unlock programme that means buyers will only need a 5% deposit.

Penny stocks are thinly traded and often have sizeable spreads between the buying and selling price. They are also more volatile than larger stocks, owing partially to their smaller market cap.

So, here are two penny stock that I’m looking to buy for my portfolio.

Steppe Cement

Steppe Cement (LSE:STCM) is a Kazakh cement maker that is listed on the London Stock Exchange.

It’s certainly not well known, but those who do know it are probably aware of its sizeable dividend yield. At today’s price, the yield is 9.46%. That’s double the FTSE average.

The group also announced impressive growth earlier this week.

For 2021, pre-tax profits rose 63% to $21.4m, up from $13.1m the year before. Revenue grew 13% year-on-year to $84.6m from $74.8m in 2020. Higher prices were partially responsible for the revenue growth. Production increased 3% to 1.69m tonnes from 1.65m tonnes.

Steppe said that the Kazakh cement market grew by 23% in 2021 and they 2022 growth to be at a similar level.

The firm said that it “wishes” to recommend a 5p dividend for the year, but were waiting on developments in Malaysia.

Long-term prospects look positive. The Prime Minister’s office has forecast strong demand for housing due to the outdated nature of existing dwellings, as well as an increase in the birth rate in the past two decades. 

One thing that concerns me is the spread. I can currently buy for 38p but sell for 36p, meaning I’d need to see at least a 4% increase to get my money back.

Inland Homes

I’m also interested in Inland Homes (LSE:INL) despite the concerns about the UK property market.

In the year to September 2021, the company made £21m in profit, marking strong growth from 2020 when it made £12m. However, this is still below 2019, when the firm achieved £30.5m in profit.

The property market has gone from strength to strength since its last full year report. So, I anticipate results for 2022 to be particularly impressive.

Earlier this month, fellow housebuilder Crest Nicholson actually increased its forecast for the year. Likewise, Bellway noted that “ongoing positive price momentum continues to offset build cost inflation” too.

However, things might get a bit tougher for housebuilders in the near term as interest rates rise. The Bank of England raised rates by 25 basis points today, but more rate rises are expected. On top of this, there’s also a cost-of-living crisis and some fairly negative outlooks on economic growth.

But in the long run, I think demand for homes will remain strong. Numerous governments have failed to address the UK’s housing shortages. That’s why I’d buy shares in Inland Homes and hold it for the long run.

Aura Energy

Price: 10.3p per share
Market cap: £54.2m

Mining business Aura Energy (LSE: AURA) is evolving from a uranium explorer to a producer of the radioactive material. I think it could therefore be a great way for me to make money from rising nuclear energy demand.

This particular energy stock is focussed on developing the 800,000-pound-a-year Tiris uranium project in Mauritania. Fresh drilling work began in May to upgrade resources at the site which Aura hopes will produce first material in 2024. It believes the programme could lead to annual production of 3m and 5m pounds of uranium before 2029.

I think Aura has terrific earnings potential as the world moves towards low-carbon energy sources. Nuclear energy use is tipped to rise steadily as the burning of fossil fuels declines. Nuclear power will also be essential for helping the lights stay on when adverse weather conditions impact renewable energy generation.

This is why the International Atomic Energy Agency thinks nuclear energy capacity could reach 792 gigawatts (GW) by 2050. That’s more than double the 393 GW recorded in 2020.

Remember that Aura still has some way to go before Tiris starts producing. Any setbacks with mine development could derail profits forecasts and prompt Aura to embark on fresh fundraising. Shareholders could be tapped for cash or more debt added to the balance sheet.

Such risks are part-and-parcel of investing in small-cap mining stocks. And it’s my opinion that buying this penny stock today could be a good idea for me before its share price potentially explodes.

Inland Homes

Price: 41.5p per share
Market cap: £97.7m

Rising interest rates pose a threat to Britain’s housebuilders by putting homeowner affordability under even more pressure. But I’m still tempted to invest in penny stock Inland Homes (LSE: INL) right now.

Recent trading updates from across the industry show how resilient demand remains despite recent Bank of England action. On Tuesday, for instance, Bellway said that sales reservations per week were up 5.9% between 1 February and 5 June. Critically the firm said that “ongoing positive price momentum continues to offset build cost inflation” too.

Inland Homes is set to release its own set of financials in the coming days. I’m expecting another set of impressive numbers that could help its share price to rise strongly.

The company’s low valuation certainly gives plenty of room for a share price re-rating. The penny stock trades on a forward price-to-earnings (P/E) ratio of just 6.7 times. I think Inland Homes could prove an lucrative long-term investment as historically-low interest rates would appear here to stay. In my opinion, homes demand looks set to outpace supply for years to come.

I don’t think this rating properly reflects Finsbury Food’s exceptional progress in overseas territories, for one. Revenues from its European markets jumped 13.4% year-on-year during the 12 months to May. I also like the investment its making in machinery, such as boosting artisan bread capacity by half to capitalise on soaring demand for fancy breads. Finsbury Food trades at 96p per share right now.

Another penny stock on my radar

There’s no shortage of top housebuilding shares that offer great value today. One that’s attracted my attention is Inland Homes (LSE: INL). At 53p per share, the construction business trades on a P/E ratio of below 8 times. It’s not the sort of valuation I think reflects the strength of trading here recently.

Inland Homes enjoyed record profit of £195m in the 12 months to September, financials this month showed, while its order book for partnership housing leapt 56% year-on-year to £164.7m.

It’s possible that booming inflation in Britain might prompt severe interest rate hikes by the Bank of England. This could, in turn, damage broader homes demand as buyer affordability comes under the cosh.

There’s also the danger that severe supply chain issues hitting the building materials market could persist. This could cause sustained cost pressure and even damage production rates if the company fails to source product. Still, it’s my opinion that these risks are baked into Inland Homes’ rock-bottom valuation.

A top renewable energy stock

Grabbing a slice of the renewable energy market is also on my investing wishlist today. The COP26 climate summit this month underlines how investment in green power looks set to explode. And as a share investor this gives me the chance to make some decent profits while helping to fight the climate crisis.

US Solar Fund (LSE: USFP) is a penny stock I’m considering buying to ride this phenomenon. As the name implies, this UK share invests in solar farms that are located in the States, more specifically in North Carolina, California, Utah and Oregon. This gives it an edge against many other renewable energy stocks.

US legislation surrounding green energy is also some of the most favourable towards operators like this anywhere on the planet.

A word of warning however.  Generating energy from the sun can be extremely unreliable, even in the US. Maintaining solar farms can also be an expensive business and this can eat into profits. But despite these risks, I still think US Solar Fund could be a great share to buy and own for the next decade. Today, the company trades at 72p per share.

In the FTSE 100, I think £60bn megacap British American Tobacco (LSE: BATS) is great value right now. In the mid-cap FTSE 250 index, gold and silver producer Hochschild Mining (LSE: HOC) also looks dirt-cheap to me. And I reckon £100m AIM-listed Inland Homes (LSE: INL) is a real bargain-basement buy in the small-cap space.

Growth in the face of risks

There’s no denying British American Tobacco faces risks from rising health awareness and tightening regulation. Equally, these risks have been running for decades and the company’s been resilient in the face of them.

Over the last five years, it’s grown its earnings at a compound annual growth rate (CAGR) of just shy of 10%. Dividends have increased at a CAGR of 7%.

Low earnings multiple and high yield

Earnings will likely advance at a somewhat lower rate for the next few years. The company is investing in its fast-growing — but currently loss-making — ‘new categories’, including vapour and heated tobacco. However, management sees a “clear pathway” to new-categories profitability by 2025.

BATS is valued at less than eight times 2021’s forecast earnings and has a dividend yield of 8.6%. For me, this more than compensates for regulatory risk and a phase of lower growth.

Shaping up well

Gold and silver producer Hochschild Mining is another UK share I’d like to buy right now. It currently operates three underground mines (two in Peru and one in Argentina).

Output last year (24.9m silver equivalent ounces) was impacted by Covid-related stoppages. However, 2021 is shaping up well. The company recently said it’s “firmly on track” to meet its target of 31-32m ounces.

Growth at a cheap price

In addition to a big bounce-back in earnings this year, analysts have pencilled-in further strong growth (27%) next year. HOC trades at just 8.1 times the forecast earnings. The price-to-earnings growth (PEG) ratio of 0.3 is also deeply to the ‘good value’ side of the ‘fair value’ marker of 1.

The forecasts rest on current expectations for gold and silver prices. There’s a risk these could change for the worse. However, I think HOC’s strong (net cash) balance sheet and dirt-cheap valuation provide me with a wide margin of safety.

My third dirt-cheap share to buy

Inland Homes specialises in acquiring brownfield land and enhancing its value by securing planning permission for residentially-led development schemes. It builds open-market and affordable homes, and also profits from selling surplus consented land to other developers.

The company has quite a high level of borrowings, due to a period of rapidly growing its land bank before the pandemic struck. This represents a risk. However, one of management’s key objectives is “to continue the progress we are making on the reduction of our net debt,” and I think Inland’s current valuation is compelling.

At the last reckoning, the company’s net assets stood at £168m and the development value of its land bank at over £3bn. How much is the market valuing the assets and development value at the current share price? Just £107m. To my eye, there’s considerable value in this small-cap stock waiting to be unlocked.

First up is a £128m-cap housebuilder and regeneration specialist whose portfolio has a gross development value of £3.2bn.

Discount bargain

Inland Homes (LSE: INL) acquires brownfield land in south and south-east England. Its expertise is in the often-complex task of obtaining planning permission for such sites. Once secured, it builds open-market and affordable homes, or sells surplus consented land to other developers.

In its recent half-year results, the company reported an EPRA net asset value (NAV) of 97.8p a share. The share price (56p, as I write) stands at a discount of over 40%.

Changes in the residential housing market or planning regulations could represent downside risk or upside potential for INL. I think the discount share price offers me a degree of protection against the downside risk. And also — along with that £3.2bn development value of its portfolio — considerable upside potential.

Premium penny stocks to buy

By contrast to Inland Homes, the shares of my other two penny picks are trading at a premium to their NAVs. However, I can see good reasons why I should be willing to pay these prices.

Primary healthcare property investor and developer Assura (LSE: AGR) uses a variant of EPRA NAV called net realisable value (NRV). As last reported, its NRV stood at 59.6p a share. With its shares at 76.5p, again, as I write, the premium is 28%.

As an NHS partner of choice, Assura enjoys long leases and a reliable rent roll. I think the market is right to value these things highly. The company identifies adverse changes to government policy as the highest-impact risk it could face. This could certainly be damaging for my investment if it happened, but I’m prepared to accept the risk.

$7.3trn market disruptor

Chaired by Innocent Drinks co-founder Richard Reed, Agronomics (LSE: ANIC) is a venture capital investor in companies in the nascent ‘clean foods’ industry. Its portfolio includes businesses like global leader in cell-cultured seafood BlueNalu.

Based on the year end (31 December) balance sheet and a subsequent fundraising, I put NAV in the region of 11p a share. Meanwhile, the share price is more than double that at 23.75p, as I write. However, the current intrinsic value of the portfolio companies could be significantly higher than the mooted NAV, because of their continuing progress since 31 December.

There’s a risk the clean foods industry may not be as effective in disrupting the $7.3trn global meat, poultry and seafood market as proponents think. However, the potential’s exciting, I like Agronomics’ portfolio approach, and the premium share price doesn’t put me off.

My penny stocks to buy

One thing the three stocks share that I also like is they play well to the post-pandemic theme of ‘build back better’ and the desire for a cleaner, healthier and more sustainable world.

Inland’s benchmark-setting and award-winning “sustainable communities and homes,” Assura’s “outstanding spaces for health services in our communities,” and Agronomics’ “solutions to improve sustainability, as well as addressing human health, animal welfare and environmental damage,” could all help improve the world… and hopefully my wealth!

Well a recent report conducted by Foundation Loans and BVA BDRC, one which surveyed 738 existing landlords in June, suggests that the answer could be a hearty ‘NO!’

“Our survey says…”

According to trade bible Mortgage Solutions, a whopping 50% of those questioned said that they wouldn’t enter the buy-to-let market as of today. They cited recent government intervention and regulatory changes affecting the sector (such as hikes in stamp duty and the phased reduction of mortgage interest tax relief) and the subsequent impact on returns as critical reasons why confidence in the sector has dived of late.

Commenting on the data, Jeff Knight marketing director at Foundation, said that “such measures were always going to have a real influence and they have undoubtedly resulted in a large number of so-called amateur landlords either selling up or not being able to go ahead and add to portfolios.”

Increased tax bills aren’t the only reason why landlord sentiment has turned sour, however — that Foundation report indicated that broader economic uncertainty is also playing havoc with the sector.

A better buy

Recent figures on buy-to-let mortgage approvals illustrate just how far buy-to-let confidence has soured, the latest of which from UK Finance showed a 3.6% year-on-year decline in loan applications for home purchase in July (to just 5,300).

Why take a chance on this increasingly problematic and costly investment class when there are many better ways to make your money work for you. Indeed, if you’re looking to grab a slice of the UK property sector, then housebuilder Inland Homes (LSE: INL) is a much better way to try to get rich than buy-to-let investment, certainly in this Fool’s opinion.

There’s a reason why the construction colossus has seen its share price balloon in 2019 (up 33% since January) while sentiment for the broader sector has plummeted of late: investors are pumped by the AIM company’s long-term profits outlook in the South East of England.

A major driver for the Inland stock price during the summer has been the receipt of planning approval for it to build 350 homes, and adjacent commercial and community premises, on the 100-acre Wilton Park site in Buckinghamshire — a site described as “the best residential opportunity in southern England” by Savills — and the subsequent approval to build 1,725 homes and other facilities at its Cheshunt Lakeside in Hertfordshire.

In a nutshell, the country’s shocking homes shortage is no more problematic than in the Home Counties and London where population growth and economic expansion is the strongest. And clearly Inland Homes is in the box seat to lasso these trends and generate some serious profits in the years ahead, assisted by its plans to supercharge build rates (it’s aiming for 1,000 new homes by 2021).

And in the near term, City analysts are expecting earnings to rocket 13% in the fiscal year to June 2020 alone, expectations that lead them to believe that another weighty dividend rise is predicted as well (resulting in a chunky 4.4% forward yield). So forget buy-to-let, I say, as Inland Homes is a much better way to generate some serious returns in the coming years.

In a recent report, property investment specialist BondMason revealed returns for private landlords have slowed to a crawl over the past few fiscal periods. In the tax year to April 2017, average returns fell to just 7.2%, down from 13.7% the year before, ending a track record of annual rises that ran into double-digit percentages.

And things have got even worse since then, slowing to 6.7% in fiscal 2017/2018 and deteriorating to 2.1% last year.

Buy-to-let exodus?

BondMason is tipping things to get even worse too, as property owners increasingly struggle to square a circle and balance rental income with increasing running costs and the loss of tax relief.

In particular, BondMason put the stepped reduction in mortgage interest relief firmly in its crosshairs, rules that will see landlords restricted to claiming a basic rate of income tax of 20% on their mortgage interest costs from next year while still having to pay the full tax rate on rental income.

“In some cases, landlords will have seen their tax bills double or even treble over the last few years,” chief executive Stephen Findlay commented before predicting: “I would not be surprised to see many private landlords making no income or even a loss next year as this change takes effect.

“This may lead to more and more landlords thinking again about their buy to let investment portfolios,” he added.

A better investment

I’m not about to disagree with Findlay. Given the government’s struggles to plug the supply and demand gap in the housing market, steps to increase regulation and diminish investor returns are only likely to become more numerous, exacerbating the exodus of buy-to-let investors.

Because of this, I for one am much happier to spend any extra capital I have on stocks, and there’s plenty of great companies for those seeking access to the property market more specifically to dial into.

Take Inland Homes (LSE: INL). This land-trading-firm-turned-housebuilder is in great shape to ride the homes shortage that’s driving sales of newbuild properties. It’s why both earnings and dividends are expected by City analysts to keep rising though the next couple of years, at least.

Latest trading details underlined why the number crunchers are so optimistic, with the AIM-listed business confirming in March that “demand for new homes continues to significantly outstrip supply” in spite of continued political and economic uncertainty. And through its medium-term goal of building 1,000 homesteads in high-demand areas in Southern England, it’s well-placed to capitalise on this fertile trading environment.

As a result of bright City forecasts, Inland carries big yields of 4.3% and 5.2% for this year and next. What’s more, the construction giant is scandalously cheap based on current forecasts too, as reflected by its forward P/E ratio of just 7.8 times. Can buy-to-let seriously be considered a better investment that this? Not a chance,  in my opinion. I for one would be much happier to spend my cash on this housebuilding hero.

With that being the case, I think property stocks are now a much better investment than buy-to-let property and today I’m going to highlight two property stocks that I believe can help you make a million.

Deep value

The first company is Inland Homes (LSE: INL). This immediately looks to me as if it is a deep value investment. It is trading at only 85% of book value, a forward P/E ratio of 7.2 and it supports a dividend yield of 4.3%.

It’s not immediately clear why the market is giving this business such a wide berth. Over the past six years, net profit has risen by more than 300% as the property development, and regeneration specialist has benefited from the UK’s booming property market. Over the same time frame, Inland’s dividend to shareholders has increased tenfold, and it looks as if management can improve the payout further. It is covered three times by earnings per share.

Undervalued 

The figures above tell me Inland could be a much better investment then buy-to-let. For a start, the stock is undervalued by around 50% compared to the rest of the UK real estate sector, which trades at a forward earnings multiple of approximately 16. On top of this, earnings per share increased at around 30% per annum for the past five years, while this rate of growth is clearly unsustainable over the long term, analysts have pencilled in high single-digit earnings growth for the next two years.

This growth, coupled with the group’s 4.3% dividend yield, implies the stock could return around 10% per annum for the foreseeable future, that’s without including an increase in valuation to the sector average.

An investment of £100,000, roughly the same amount as a deposit required on a buy-to-let property, would grow into £1m after 25 years with a return of 10% per annum.

Capital property 

Another property company that I think and help you make a million is Helical Bar (LSE: HLCL). 

Helical is focused on the ownership and development of property mainly in and around London, and its track record of creating value for shareholders is impressive. For example, since 2013 book value per share has increased by 16% per annum. 

Unfortunately, the stock is currently trading at a discount to book value of around 27%, so this value creation is not entirely reflected in the stock today. Still, if the company continues to do what it has done in the past, I think it is highly likely that over the long term, the shares will trend towards the current book value of 463p and possibly higher as the firm continues to create value for shareholders. 

And as the company’s property portfolio is located in and around London, I think there’s a high chance an opportunistic buyout offer could be tabled for the group. 

On top of the deeply discounted valuation, the stock also supports a dividend yield of 3.1%, which implies shareholders could see an average annual return of 19% on their money through a combination of book value growth and dividends.